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Bank Stocks Rally, Traders Sigh With Relief

Written by: Jane Searle03/21/14 - 12:18 PM EDT

Tickers in this article:
GS MS SST

NEW YORK (TheStreet) -- Banks stocks were jumping Friday, drawing an almost palpable sense of relief from professional traders who have been bemoaning a lack of leadership from this sector.

Financial stocks are viewed as an economic health barometer, with traders traditionally looking to these stocks to lead a sustainable market rally. The trigger for this week's gains: bank stress tests that were released after Thursday's close and which -- unsurprisingly -- most of the mega-cap banks passed easily, implying dividend growth would soon resume.

Berstein Research senior analyst Brad Hintz said the stress tests implied Goldman Sachs, Morgan Stanley and State Street were among the most economically sensitive stocks, with these firms subjected to additional global market shock and counterparty default scenarios.

Compared to the 2013 stress test, the impact was modestly worse for Goldman Sachs, slightly better for Morgan Stanley and better for State Street and BNY Mellon , Hintz added. The broker suggests Goldman Sachs, Morgan Stanley, Northern Trust, the Bank of New York Mellon and State Street will be able to easily return capital, and rates GS and MS as "outperform."

Other "risk-on" indicators are also clear in markets. Check out the gold price below, which jumped earlier this month as fears around geopolitical risk in Europe and the outlook for Chinese growth shook sentiment, causing a retreat to safe-havens. Gold prices have since nosedived as the threat of military action in Ukraine fades and economic data points to the ongoing U.S. recovery.

In other commodities, iron ore is flat-lining as the market cautiously assesses China's growth trajectory. The Shanghai Composite had its biggest one-day gain since mid-November on Friday, up 2.72% after speculation the government is loosening funding rules for property developers and banks to help economic growth. Nevertheless, the index is still viewed as a "casino" by many fund managers who are sticking to the Hang Seng or Chinese stocks listed on developed exchanges.

Meanwhile, Russian big-cap stocks are clawing back gains after its swoon on Ukraine tensions and sanctions against it after its bid to annex the Crimea region. Some fund managers suggest Russia has ruined its reputation with global investors, who will now seek other emerging markets with less geopolitical risk.

And U.S. stocks continue their ascent -- the Dow and the S&P up 2% for the week as the S&P narrowly holds a new intraday high.